Attack on 'loser pays'

Ritter should veto bill pushed by plaintiffs bar

Monday, April 2, 2007

We generally like the principle of "loser pays" in lawsuits. If it could be extended to more types of cases, it might discourage frivolous litigation and thus reduce the backlog in the courts as well as save many people from needless legal expenses.

Currently, the loser-pays doctrine is mostly created by statute to cover specific areas, such as employer-employee relations, where it seems to work best.

Consider the state law that makes it illegal for an employer to punish a worker who engages in lawful activity off duty. An employer can't fire someone who smokes (even if it drives up employer-paid health insurance), or overeats, or participates in a political activity the employer doesn't like. It's a reasonable restriction.

If an employee claims he has been illegally fired, he can sue. If he wins, the employer has to pay the worker's legal fees and court costs as well as back pay and penalties.

If the employee loses, he has to pay the employer's court costs and legal fees. Seems fair to us.

But of course that doesn't sit well with the employment plaintiff's bar, which feels the law unfairly discourages legitimate suits.

To promote more legal action, Senate Bill 117 was introduced to make the burden one-way. A winning plaintiff still would collect court and attorney fees from his employer, but a winning employer would now have to pay his own fees.

What's wrong with that? Well, most plaintiffs are represented by lawyers who work on a contingent- fee basis. They often don't even expect to go to court; all they're looking for is a settlement. The fee still applies.

Under SB 117, which has passed both houses and will go to the governor when differences are ironed out, lawsuits will multiply because there will be little downside to bringing relatively meritless cases. You still might get a settlement. Meanwhile, employers will have an incentive to settle even when they know they're in the right. That's because their legal bills, which they'll have to pay even if they win, could very well exceed the cost of settlement - and in some cases most certainly will.

True, there is another statute that requires those who file lawsuits found "frivolous" by a judge to pay the defendant's costs. But judges are notoriously reluctant to declare a suit frivolous, and almost never do. It's a toothless discouragement.

As introduced, the bill applied to any company, no matter how tiny. That would have put a ridiculous burden on small business, and so the Senate accepted an amendment that exempted companies of less than 50 employees from the new law.

In the House, the exemption was reduced to companies of 15 or less. We don't like the bill in any form, but if it's going to take effect, at least it should apply only to larger companies. Some small firms could be ruined by the legal fees even if they win in court.

We would encourage Gov. Bill Ritter to veto the bill when it reaches his desk. "Loser pays" is a sound doctrine. Turning it into a one-way street benefiting only employees will hurt the business climate in Colorado.